The Markets
Market opening: The FTSE-100 is expected to start the session around 60-points higher this morning.
New York: Wall Street ended in the green, with the rebound in WTI prices lifting investor confidence. Meanwhile, investors await the Fed’s decision on an interest rate hike this week. The S&P 500 rose 0.5%, with the telecommunications sector gaining the most.
Asia: Equities are trading mixed amid volatility in oil and commodity prices. The fall in the Chinese yuan against the US dollar weighed on investor sentiment. The Nikkei 225 fell 1.7%, dragged by export stocks. The Hang Seng was trading 0.1% up at 7:00 am.
Continental Europe: Markets ended in the red, with weak commodity and oil prices continuing to exert pressure on energy stocks. Investors remained cautious ahead of the Fed’s decision on its interest rate. Germany’s DAX and France’s CAC 40 shed 1.9% and 1.7%, respectively.
Crude Oil: Yesterday, WTI prices rose 1.9%, while Brent oil prices closed broadly flat. The spread between the two varieties stood at US$1.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 1.12% lower yesterday at 717.31.
Today’s news
Eurozone industrial output improves in October
As per Eurostat, industrial output in the Eurozone improved 0.6% m-o-m in October, after declining 0.3% m-o-m in September, marking the first increase in three months. The improvement was led by an increase in the production of energy and non-durable consumer goods.
Company news
Hummingbird Resources (LON:HUM) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today its maiden ore reserve estimate for its 85% owned Yanfolila gold project in Mali. The reserve estimate is based on the Komana East and West pits as these will be mined first during Phase 1. The other deposits with significant resources include Guiren West, Gonka, Sanioumale East and Sanioumale West which will be mined during Phase 2. Maiden probable gold reserves comprise 6.82Mt grading 3.03g/t and containing 665,600oz, representing a 22% increase in contained gold and a 15% increase in grade from the mineral resource estimate reported in the March 2015 optimisation study using a US$1,100 pit shell. Additionally, there is a non-compliant historical resource of 390,700oz grading 2.54g/t Au as defined by Gold Fields Limited. Of the previously reported indicated resources, 100% have been converted into reserves. Based on the maiden reserve estimate, Hummingbird has increased its planned throughput capacity from 1.0Mtpa to 1.24Mta (with a further increase of 1.5Mtpa) and increased annual gold production to c120,000oz for its first full year of production. In addition, the planned processing plant will now be able to handle all ore types including 1Mtpa of fresh ore. As a result of the revised processing flow sheet, the detailed due diligence on behalf of Taurus Funds Management has taken longer than expected. However, the production guideline remains unchanged at 12-15 months from the main debt draw down.
Our view: The announcement of the maiden reserve estimate for the Yanfolila gold project is a significant milestone for the company. We are impressed with the 15% increase in gold grade and the 100% conversion of indicated resources to reserves from the March 2015 optimisation study which should have a positive impact on the overall economics of the project. We are also encouraged with the continued development and technical de-risking of the project. We look forward to completion of the technical due diligence at Yanfolila as well as the revised mine schedule and updated project economics. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Hummingbird Resources plc
Orogen Gold (LON:ORE) – Speculative Buy
Orogen Gold, the gold and minerals exploration company focused in Europe, announced yesterday an update from its recent drill programme at the Mutsk gold project in southern Armenia. The drilling programme whilst limited, has extended the known strike length of previously defined gold mineralisation and the deposit remains open in at least two directions and at depth. While the two most recent holes, OG15-48 and OG15-49 were drilled to test further zones of hydrothermal alteration and continuity of mineralisation, only OG15-48 confirmed the presence of the alteration zone and was gold bearing. Two drill holes (previously announced) intersected shallow gold-bearing intervals including 21m grading 2.68g/t Au from 29m in hole OG15-46 and 22.4m grading 1.08g/t Au from 20m in hole OG15-47. Management will now review all work to date. Orogen has an exclusive agreement with Georaid CJSC to earn 80% interest in the Mutsk project by spending a total of US$2.5m by the end of August 2016.
Our view: Although the final drill holes of the 2015 drill program returned limited gold intersections, 3.7m grading 0.64g/t including 2.3m grading 0.97g/t in drill hole OG15-48, we remain encouraged with overall results and the presence of shallow and wide gold-bearing intercepts. Whilst further drilling is required to define a compliant mineral resource estimate, we are encouraged with the preliminary assay results which extend the main target zone to the south beyond the 500m strike length outliner by earlier drilling and at depth. We look forward to the continued evaluation of the potential for increased tonnage and higher gold grades from the Mutsk project. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Orogen Gold plc
Tertiary Minerals (LON:TYM) – Speculative Buy
Tertiary Minerals plc, the AIM traded company building a strategic position in the fluorspar sector, yesterday announced audited results for the year ended 30 September 2015. The Group reports a loss of £674,991 for the year (2014: £358,807) after administration costs of £569,515 (2014: £586,595 reclassified) and after crediting interest of £2,314 (2014 £4,412). The loss includes expensed pre-licence and reconnaissance exploration costs of £23,869 (2014: £9,214), impairment of deferred exploration costs of £4,522 (2014: £3,254) and impairment of available for sale investment (the Company’s share in Sunrise Resources plc) of £260,997 (2014: Nil). Operational highlights for the period included, (i) a 132% increase (contained fluorspar) in the JORC compliant Mineral Resource Estimate for the MB Project in Nevada, USA: Indicated 6.1 million tonnes grading 10.8% fluorspar (CaF2) and inferred 80.3 million tonnes grading 10.7% (CaF2) at 9% CaF2 cut-off; (ii) Higher fluorspar grades and thick intersections encountered in the newly discovered Western Area of the MB Project, together with the commencement of a fourth drill programme with key objective being to target potential higher grade fluorspar and extent in the newly discovered Western Area; (iii) Storuman Exploitation (Mine) Permit application progressed through final stages of stakeholder consultation with a decision anticipated shortly, with continuing progress on Storuman Preliminary Feasibility Study minerals processing testwork; and (iv) the successful fundraising of £1m before expenses amid difficult market conditions.
Our view: The collapse of the iron ore market earlier this year appears to have provide a catalyst for the negative sentiment that pervaded the wider basket of industrial commodities in subsequent months. Fluorspar has found itself far from immune to this, both in terms of demand and pricing, as concerns over the potential impact from a more prolonged and deepening Chinese slowdown continues to overwhelm the consumer’s imagination. Investors do need to remember, however, that in all such notoriously cyclical markets are darkest before the dawn. Price stabilisation at recent low levels are a good sign, against which there is broad agreement amongst industry participants that the current low fluorspar prices are simply not sustainable in the medium term. Confident of this fact, Tertiary management has delivered on its promises to both substantially increased resources at MB and also expects to secure the Mining Concession at Storuman shortly. Being able to run ‘a very tight ship’, this has been achieved through modest equity placements only. In 2016 management expects the focus will move to process testwork, economic modelling and permitting studies; should the current drilling be successful, it can also look forward to a further Mineral Resource upgrade in early 2016. Given how advanced Storuman now is and the absolute scale of the MB project, the Group’s lowly valuation reflects just about none of the value that will be created by any rebound in pricing in the coming months. Beaufort accordingly reiterates its Speculative Buy on Tertiary Minerals.
Beaufort Securities acts as corporate broker to Tertiary Minerals plc
CityFibre Infrastructure Holdings (LON:CFHL) – Speculative Buy
Yesterday, CityFibre Infrastructure Holdings (CityFibre) announced the conditional acquisition of some of the national infrastructure assets of KCOM Group for a total consideration of £90m, subject to the approval of CityFibre’s shareholders. Separately, the company informed that it would raise £80m through placing its shares. The consideration amount is to be financed by the proceeds from share placement and debt. The assets acquired by the company include around 1,100 route kms of metro network assets in 24 towns and cities. As per the terms of the agreement, CityFibre would provide KCOM access to the acquired assets for up to 15 years, subject to minimum of 5 years and minimum revenue of £5.0m per annum during these 5 years.
Our view: The aforementioned news is an important milestone for CityFibre as it acquires infrastructure assets of KCOM. The acquisition provides the company an opportunity to have its presence in 21 new markets spread across the UK. Post the acquisition, CityFibre’s footprint would increase to 36 cities, offering pure fibre connectivity, to be used by regional and national service providers. Additionally, the company plans to reduce its debt by using the proceeds from the issue of shares. Recently, CityFibre won its first contract under the Master Services Agreement with Vodafone Limited to provide its pure fibre connectivity to Vodafone’s customers. Furthermore, CityFibre delivered solid results in the first half of 2015 with improved revenues and enhanced cash position. The company is well placed with some impressive contracts and national level partners, and joint ventures with UK’s leading broadband service providers to cover a large customer base. We believe CityFibre’s strong asset base would facilitate its growth and earnings for the entire year. Therefore, we maintain a Speculative Buy rating on the stock.
AFC Energy (LON:AFC) – Speculative Buy
AFC Energy informed yesterday that it has installed all 24 fuel cell cartridges at the KORE system built at the Stade facility in Germany. The company plans to start pre-commissioning of the entire system in manual mode this week. AFC would announce results of full commissioning by the end of January 2016.
Our view: AFC continues to make progress in its first fuel cell system as it commences pre-commissioning of the system. This is a part of the Milestone 11 of its POWER-UP strategy. AFC has successfully accomplished its previous milestones with minimal resources, ahead of its stipulated time, reflecting its operational efficiency and technological advancement. Once the fuel system is fully operational, it would be the world’s largest alkaline fuel cell system, functioning at an industrial facility selling power to national electricity grid. Furthermore, AFC has recently signed a Power Purchase Agreement (PPA) with Stadtwerke Stade which would help it commercialize the energy generated from the system. The electricity sales from the systems would be the first commercial revenue earned by AFC. We are encouraged with AFC’s progress and developments at the KORE system and await future updates on the same. In the meantime, we maintain a Speculative Buy rating on the stock.
PHSC (LON:PHSC) – Speculative Buy
Yesterday, PHSC announced that it has completed the acquisition of SG Systems (UK) Limited. SG is an anti-theft solutions and merchandising firm providing a range of security products and services to national, regional and independent retailers across the UK, Europe and the USA. The company has to pay consideration of £275,000 in cash on completion along with the issue of 100,000 new ordinary shares of PHSC. In addition, PHSC has to pay £200,000 at the end of first year and final cash payment at the end of second year. The final amount is a nominal £75,000, capped between £25,000-375, 000, based on SG’s performance in the second year. PHSC has made an application for the new shares to be admitted for trading on AIM. The admission is expected to commence on 18th December 2015. Post the admission of the acquisition shares, PHSC would have 13,086,348 ordinary shares in issue. The acquisition shares would rank pari passu with the existing issued ordinary shares. Separately, the company informed that it has completed the acquisition of Camerascan CCTV Limited. The company has to pay consideration of £75,000 in cash on completion along with issue of 300,000 new ordinary shares of PHSC. An additional £50,000 in cash is payable before 31st March 2016.
Our view: The aforementioned acquisitions are is in line with PHSC’s plan to improve the range of opportunities in the pipeline. The acquisition of SG strengthens the company’s presence in the retail security tagging sector. PHSC entered this segment through the purchase of B to B Links Limited. Both these acquired firms would work together to enhance the synergies. Additionally, the acquisition of Camerascan improves company’s market in the CCTV sector. Camerascan would become an operational division of B2B. Recently, B2B secured new CCTV installations valued at more than £500,000. Furthermore, company’s another subsidiary, QCS International Limited, is expected to generate earnings by advising on major changes to quality standards. In light of the above developments, we upgrade the rating to Speculative Buy.